Excess Spread - Doom and gloom, time to get weird, Barca ahoy
- Owen Sanderson
Doom and gloom
Flicking through the research notes in my inbox they all have titles like “Price fall”, “Spreads widening”, “underperformance”, “Stagflation fear”, “Wake up call”, “Darker clouds”, “Markets on the brink” and “Capitulation in sight”. Things ain’t good out there. The war risks might be increasingly priced in, and the market had sort of stabilised at wider, weaker, wobblier levels, but another round of central bank-induced puking is the order of the day.
As ever, the ABS market reacts slower to broader sell-offs, but it’s still not looking good. Relative value matters — the sell-off in Crossover a few weeks back had a read-across to sub-IG mezz prints in primary, with the buyside seeing the right level as a multiple of Crossover, and issuers hoping for a fixed spread. That seemed to go very much in favour of the investors...when there are only one or two buyers, they can name a price — so let’s see what this week’s primary brings.